The Bank of Korea raises the basic interest rate, tightens the policy to control inflation

South Korea’s central bank raised its key interest rate for the second time in three months as it sought to curb rising inflation and surging household debt.

The Bank of Korea increased its benchmark 7-day repurchase contract rate by 25 basis points to 1.00% on Thursday. The bank raised interest rates to 0.75% from a record low of 0.50% in August.

All 34 analysts surveyed by The Wall Street Journal ahead of the decision forecast a rate hike in November. Most analysts expect the bank to raise rates further next year.

The bank has hinted that it may revise up its inflation forecast, indicating an urgent need to rein in price growth. Consumer prices in October hit their highest level in nearly a decade and topped the 2.0% annual target for seven straight months.

The bank is looking to return to the stimulus brought by the pandemic as the economy continues to recover on the back of fast exports and fiscal stimulus. South Korea’s exports rose for a 12th straight month in October on strong demand for semiconductors and other goods.

The bank expects the economy to grow 4.0% in 2021 and 3.0% in 2022. The pandemic-hit economy in 2020 shrinks by 0.9%. The Bank of Korea raises the basic interest rate, tightens the policy to control inflation


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